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Failure to disclose all available supporting documents within prescribed period of time could result in a charterparty claim being time-barred

2020-01-31

Introduction

In November 2019, the Commercial Court of High Court of Justice Business and Property Courts of England and Wales Queen’s Bench Division released a judgment (MUR Shipping B.V. v Louis Dreyfus Company Suisse S.A. [2019] EWHC 3240 (Comm)) which upheld an arbitration tribunal finding that the disclosure of a relevant and supportive document after the period of time stated in relevant clause would result in a charterparty claim being time-barred.


Case background

The Charterparty for the Vessel TIGER SHANGHAI (the “Vessel”) was made between MUR Shipping B.V. (the “Charterers”) and Louis Dreyfus Company Suisse (the “Owners”). The Vessel was delivered into the service of the Charterers and advance hire and delivery bunkers were paid.

The first leg of the charter involved loading of a cement clinker cargo at the port of Carbenaros in Spain. When the Charterers discovered that the loading crane at Carbenaros was too short to reach the feeder holes on the Vessel’s starboard side, the Charterers sought the Owner’s approval to cut new feeder holes into the hatch covers. The Owners refused to approve the required work and the Charterers terminated the charter pursuant to clause 46 of the Charterparty.

Clause 46 of the Charterparty reads as follows:

 “The Charterers, subject to the Owners’ and Master’s approval which is not to be unreasonably withheld, shall be at liberty to fit/weld any additional equipment and fittings for loading…cargo…”

The Charterers’ basis for termination was that the cutting of additional feeder holes fell within the ambit of Clause 46 and Owners’ refusal for permission to cut such holes had been unreasonable, so that Owners were in repudiatory breach and Charterers were entitled to terminate the Charterparty. The Charterers commenced arbitration and claim damages against the Owners.

Nearly a year after the commencement of arbitration, the Charterers served claim submissions together with a report by a surveyor dealing with the feasibility of drilling cement holes in the hatch covers (the “Report”). As the Report was served after 12 months from completion of charter, pursuant to clause 119 of the Charterparty, the Charterers’ claim could be time-barred.

Clause 119 of the Charterparty read as follows:

“[Owners] shall be discharged and released from all liability in respect of any claim or claims which [Charterers] may have under Charter party and such claims shall be totally extinguished unless such claims have been notified in detail to [Owners] in writing accompanied by all available supporting documents (whether relating to liability or quantum or both) and arbitrator appointed within 12 months from completion of charter.”

The Owners submitted that the Report went to the heart of the issue of liability and that had it been presented earlier, it was likely that the parties could have resolved the dispute without the need for arbitration. By a majority the Tribunal concluded that the Charterers’ claim was time-barred as the Report was a supporting document of the type required by clause 119 of the Charterparty and the Report was not privileged. The Charterers appealed.


Issues in appeal

For the purposes of clause 119 of the Charterparty, the legal issues in appeal are:

1.         Is a document which would otherwise be a supporting document one which should not be counted as such if it was arguably privileged?

2.         Is a document which is not at least at the time of commencement of the arbitration of relevance to either the identification of or support for a relevant claim as referred to arbitration, a “supporting document”?


Discussion

The Charterers’ claim was predicated on the refusal by the Owners having been wrongful, because unreasonable. Without that, the termination was not valid. The material in the Report went to this question of reasonableness and was therefore supportive of the claim of the Charterers at least in broad terms. In drawing the line between broad support / pertinence and necessity to support the case advanced by the Charterers, if the reasonableness of the refusal was in play at the time when the claim was made, the Report was relevant and supportive.

Clause 119 of the Charterparty combines both specific reference to “all” and specific reference to “liability and quantum”, while not confining itself to any particular sort of claim. It is wider than clauses which tend either to omit the “all” or to arise in the context of a simple accounting claim such as demurrage, where issues such as termination do not come into the equation. Further, the claim (at least as to quantum) in fact depended on the date of termination and the date of termination depended on being entitled to terminate, which itself depended on unreasonable refusal on the part of the Owners. As such, the Report was on its face within the ambit of the claim that the Charterers advanced and supportive of it.

The parties’ commercial intention must also be inferred. Clause 119 of the Charterparty is a clause which specifically requires details and documents to be provided. The purpose of such clauses is to enable parties to assess the claim being advanced: Babanaft v Avant (“The Oltenia”) [1982] 1 Lloyd’s Rep. 448. Inferentially, therefore, the clauses are not just to enable an early closure of the books but also, given the provision of details, to enable the claim to be evaluated to facilitate early settlement. Accordingly, since clause 119 of the Charterparty covered the full range of disputes, it became feasible and compelling for supporting documents to include more complex material in appropriate cases. The Court therefore opined that the Report is both supportive in the sense required and a document in the sense required.

The Report, even though considered as reasonably arguably privileged by the Court, would still have to be disclosed pursuant to the clause 119 of the Charterparty. Non-disclosure would hardly satisfy the requirement of certainty which underpin clauses of this sort.


Conclusion

Clause 119 of the Charterparty is wider than standard clauses when it requires the Charterers to provide all available supporting documents (whether relating to liability or quantum or both) within 12 months from completion of charter to bring a claim against the Owners. It covers nearly whole range of disputes as well as full disclosure of all available supporting documents including privileged documents and documents that might not appear to be relevant or supportive when the claim was made. Therefore, for the charterers, care must be taken when agreeing to such clauses as they would be in a disadvantage position when they have a claim against the owners. As a general rule, if the party putting forward a claim has in its possession a document which might be relevant or supportive to its claim, the party should be cautious enough not to withhold such document and/or disclose it after the prescribed period of time.   




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Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.

Published by ONC Lawyers © 2020


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